PremierWest Bancorp acquisition has gone through series of detours

Friday

Dec 14, 2012 at 8:15 AMDec 14, 2012 at 8:17 AM

PremierWest Bancorp's back was against the wall.

By Greg Stiles

PremierWest Bancorp's back was against the wall.

After sustaining multiple major hits when the real estate bubble burst, followed what came to be known as the Great Recession, the Medford-based bank holding company endured a lengthy period of losses and a succession of regulatory injunctions.

By July 2009 — five months after the U.S. Treasury Department had infused $41.4 million of capital into the bank through the TARP Capital Purchase Program — the Federal Deposit Insurance Corp. labeled PremierWest Bank a "troubled institution."

PremierWest ended a 15-quarter streak of losses during the third quarter of this year, ending Sept. 30. But the $1.2 billion bank's future already was shifting, as Wall Street-backed AmericanWest Bank of Spokane, Wash., announced it planned an acquisition.

Details of PremierWest's turbulent descent were included in a Securities and Exchange Commission filing this week as the bank began notifying shareholders of a planned vote on the acquisition.

A date for the vote has not been set.

The offer by AmericanWest Bank's parent company, Starbuck Bancshares Inc., would pay $1.65 per share, totaling approximately $16.6 million, as well as pay off the $41.4 million owed to the Treasury Department.

PremierWest's assessment said it was unlikely that another buyer had both the willingness and the financial capability to acquire PremierWest at a value that was higher than that being offered by Starbuck and that met the requirements of the Treasury, according to the filing.

While PremierWest's board endorsed the deal, its largest stockholder, Georges St. Laurent, who owns 987,833 shares of PremierWest common stock — nearly 10 percent of the institution's outstanding shares — has gone on record to say that he will vote against the deal.

St. Laurent, who lives in Vancouver, Wash., joined the board in September 2009. He previously was the chairman and chief executive of Western Bank until it was acquired by Washington Mutual.

If a majority of shareholders voted with St. Laurent or simply failed to return their proxy form — unreturned proxies are considered "no" votes — the deal would collapse.

PremierWest rejected a St. Laurent proposal to pay $15 million for the stock, saying it wasn't enough to allow the bank to regain its footing so that it could repay the Treasury and become current on its long-term debt.

Also, by the time St. Laurent made his offer, PremierWest was well down the road with Starbuck and AmericanWest. Efforts to reach St. Laurent Thursday were unsuccessful.

On July 1, 2011, bank records show FDIC representatives told Jim Ford, PremierWest's chief executive officer, that the company needed to raise significant capital or merge with a healthy financial institution. The wheels went in motion as investment bank Lane Powell began putting a plan together with PremierWest executives.

In January of this year, D.A. Davidson & Co. was brought on board, outlining recapitalization, merger and divestiture scenarios. Soon after, PremierWest announced it would close 11 offices, eventually selling two of them.

In February, according to the filing, Davidson contacted 110 potential investors with 34 entering into non-disclosure agreements. At the same time, Davidson contacted 21 potential strategic merger partners, of which seven signed non-disclosure agreements. One regional bank went as far as to sign a letter of intent to acquire an unspecified number of branch offices.

PremierWest had a temporary suitor when a regional bank holding company submitted a $30 million cash bid, with 70 percent of the cash going to the Treasury and 30 percent — about 90 cents per share — going to stockholders. On April 20, the unnamed suitor formally withdrew, "indicating that the results of its due diligence review presented credit risk uncertainty."

As many as 22 investment parties were sizing up PremierWest in May, all with an eye on what the Treasury might do. Two made offers that eventually fell by the wayside. Meanwhile, four regional bank holding companies — including Starbuck — began due diligence efforts.

Then, on May 31, Scott Kisting, chairman and chief executive officer of AmericanWest, and other Starbuck and AmericanWest executives began merger discussions, although it was far from a done deal.

Davidson continued efforts to raise $75 million, including through a third investor. But Davidson reported on June 21 that only one merger partner, Starbuck, remained interested in pursuing a transaction and indicated to Davidson it would submit a nonbinding letter of intent to PremierWest.

On June 23, 2012, Starbuck submitted a $1.50 per share bid that added up to $38.8 million, with $15 million going to shareholders and $23.8 million set aside for repaying the Treasury. That figure would slowly ratchet up.

Davidson forged ahead in its quest for investors for another couple of months.

The PremierWest board suspended discussions with Starbuck on Aug. 13 and authorized pursuit of a $50 million recapitalization offer from an unnamed investor. Later the same day, Starbuck called back with a sweetened deal for both shareholders and the Treasury.

The two bank groups continued that course of action through August and on Sept. 14, Starbuck upped its proposal to $1.40 per share with another 66 cents per share in "cash merger consideration" and $32.8 million going to Treasury.

PremierWest and Starbuck entered into an exclusivity agreement on Sept. 24. Treasury made it clear that the Sept. 14 proposal was insufficient.

On Oct. 3, Starbuck bumped its offer to $1.65 per share or $16.6 million and $38.6 million for the Treasury.

But the Treasury dug in its heels, saying it would accept nothing less than 100 percent of its $41.4 million, but would forego any interest payments.

On Oct. 19, Starbuck agreed to pay off the government in full and four days later Treasury gave its approval.